The loan sharks profiting from the pain of soaring prices

"The harder it gets for everyone, the better it gets for me."

"D", not his real name, has worked as an illegal moneylender for two decades, and says business has never been so good.

He is one of two loan sharks we have spoken to in rare interviews in order to highlight the dangers of people turning to unofficial lenders due to the cost of living.

With no paperwork, high interest rates, and sometimes brutal consequences, there is huge risk attached to this type of borrowing.

D estimates that he has lent money illegally to hundreds of people across the country after starting out in security work 20 years ago. When we meet in a warehouse, his mouth is covered and he wears smart-looking sunglasses.

Nearly all of his "customers" are regulars, he says, paying off their debts within two or three months. They're usually back again a few weeks later.

D adds that with inflation remaining high, demand has soared. He now hears from single mums and families looking to borrow smaller amounts of £500 to £1,000 to pay gas and electricity bills or for groceries.

For those customers, he charges interest rates of up to 50%, but others more commonly face "double bubble" interest, where the original loan is doubled.

• Watch the full report on Newsnight on BBC Two at 22:30

Most of D's clients would probably accept whatever terms he set out, he says, largely out of desperation.

With prices failing to drop as quickly as predicted, demand is unlikely to fade soon.

Research shared with BBC Newsnight suggests that the potential client base could be expanding.

A new report commissioned by Fair4All Finance, a government-backed body that works on financial inclusion, looks at the lived experience of illegal moneylending in the UK. Researchers from fraud prevention firm We Fight Fraud and Lancaster University heard from 287 people across London, Preston, Port Talbot and Glasgow who had engaged with loan sharks and illegal moneylenders in the last three years, as well as eight illegal moneylenders.

Current users said they were borrowing about £3,000 on average, and clients were more likely to be lower-waged, full-time workers.

D calls himself an "enforcer", referring to what happens if payments are missed or his messages go ignored.

"Then, the car outside is uninsurable. The windows and doors in the front of your house are pulled out and then it even goes up to you being badly beaten."

He says that beatings are "rare", but admits to carrying out violent acts - breaking legs, smashing teeth or eye sockets, leaving people in hospital.

When challenged on why this type of "enforcement" has to be so brutal, he says: "It's personal. The way they've hurt me, I want to hurt them - physically and financially."

In his own words, he is "providing a service" that relies on people "helping him back" after he has lent them money.

'The business leader'

Another active illegal moneylender we spoke to, "M", claims to have lent millions of pounds to clients over the past 20 years.

He now runs a team that operates in different areas across the UK. He estimates that he has about £2m out in loans at the moment. When a request for money above a certain value comes in, it gets referred up to him.

M says he is "constantly amazed" at who comes to him for money

M deals with "the rich" - people borrowing higher values to fund house renovations or to get a business out of difficulty. The interest rates rise with the risk attached and a guarantor is often required.

Clients give him a form of guarantee in case they are not able to keep up with repayments. They might include a watch, a set of car keys, or pictures of photo IDs of their friends so he knows where to find them and chase the money.

"I'm constantly amazed who comes to me," he says. M claims to have funded birthday parties for well-known footballers who pay him back on payday.

With many people unwilling to talk about debt, there is little data available about the number of lenders operating without a licence. In a report last year, the right-leaning think tank the Centre for Social Justice estimated that about one million people in England could owe money to illegal moneylenders.

M dismisses what he describes as an outdated view of "a bully boy business". His collection tactics instead rely on fear.

"In this day and age, it's gone round to more being a nuisance," he says. "If there's no contact, there might be pictures outside the house, or a knock on the neighbour's door asking where you are.

"That fear, that intimidation, that coercion is better to be used without an act."

The recent research for Fair4All Finance did find that violence was rare, although the threat of it was common.

One client told the report authors that the reality of the threat felt most serious when it came to their family. "Stuff was going to happen to me, but not just me… I get threats for hurting my family… your mum is getting this, your brother is getting that."

Another female client in Glasgow claims that she was forced to clean an office building for an illegal lender as an alternative way to pay back £1,000 she had borrowed. Her debt would be reduced by about £30 per shift.

She described the experience as "degrading" and said she felt anxious and depressed. She now rarely leaves the house.

"Today, it is much more about someone getting inside your head than breaking your legs," says Cath Wohlers of the Illegal Money Lending Team, which prosecutes loan sharks in England.

"That can be anyone," she adds, pointing out that one in five people arrested by her team last year was female.

Illegal money lenders will "bleed you dry", warns Cath Wohlers

Research also suggests that clients were more likely than the average person to have been refused credit elsewhere before turning to an illegal moneylender.

Those with poor credit ratings are often limited to payday loans or other high-cost options. However, many of these - such as Wonga - have been regulated out of business, after concerns that they were causing severe financial distress to consumers.

Jason Wassell, chief executive of the Consumer Credit Trade Association, suggests there is a risk that a smaller market "can be taken too far", with access to credit being reduced for people who might then go to friends and family, or even illegal lenders.

But Mick McAteer, a former board member of the UK's financial watchdog, says that improving the regulation of "subprime" lenders has protected people from being targeted with unaffordable products.

He suggests that more efforts should be made to help people manage their debts and to boost alternative options such as community lenders or credit unions.

According to the Bank of England, about 1.98 million people across the UK use credit unions. Some experts say there is a long way to go before these can plug the gap left by the exit of higher-cost lenders. Credit unions can't reach consumers as quickly and struggle to scale up as quickly as private companies due to a lack of access to technology.

And as prices continue to rise, business for illegal money lenders like D and M shows no sign of slowing.

But as Cath Wohlers warns: "They will absolutely bleed you dry. It's just not worth it.

"If you are in debt, speak to your creditors and have conversations rather than borrowing more money to get out of it."

Information and support: If you need help with debt, these BBC Action Line links may be helpful. In addition you can contact the Illegal Money Lending Team hotline on 0300 555 2222.

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